House price convergence in the euro zone: a pairwise approach

Abstract

The adoption of the euro common currency was expected to lead to convergence for a number of economic and financial variables across national borders, including house prices. We apply a probabilistic pairwise approach to the question of whether home values converge across eight euro zone housing markets. Contrary to previous studies, we find only marginal evidence that euro housing markets converge. Moreover, for what convergence there appears to be, there is no evidence that the adoption of the euro itself played a role in creating such convergence. Finally, Germany, the largest and most dominant economy of the currency union, is rarely found to be convergent with other nations.